Ladies and gentlemen, thank you very much for standing by and good afternoon. Welcome to the Harman International Industries Fourth Quarter Fiscal 2006 Earnings Release Conference Call. At this point, we have all of your phone lines muted or in a listen-only mode. However, after the executive team’s prepared remarks today, there will be opportunities for your questions. Please feel free to queue up by pressing * and 1 on your phone keypad. Just as a note, if you should require any assistance during this earnings release, you may reach an AT&T operator by pressing * then 0, and as a reminder today’s conference is being recorded.

Ladies and gentlemen if I may have your full attention, please be aware that certain statements made by the Company during this call are forward-looking statements. These statements include the Company's beliefs and expectations as to future events and trends affecting the Company's business and are subject to risks and uncertainties. Persons participating on the call today are advised to review the reports filed by the Harman International with the Securities and Exchange Commission regarding these risks and uncertainties.

So with that being said here with our opening remarks please join me in welcoming Harman International Industries’ Executive Chairman, Dr. Sidney Harman. Good afternoon doctor and please go ahead sir.

Our Company achieved new records in sales and earnings and we completed the year with an exemplary balance sheet. Sales rose 7% to $3.248 billion. Earnings per share before restructuring increased a solid 18% to $3.89. Earnings including restructuring were $3.75 per share. Earnings a year ago were at $3.31. Each of our three groups -- automotive OEM, professional, and consumer -- were operating at a high level and it is my expectation that each of them will improve on the fiscal ’06 performance through the next five years.

Our dominance in the automotive space grew throughout the past year. Two years ago we disputed the fairly widespread view that we were locked into a high-end luxury car market for infotainment systems. Last year’s awards to us from PSA, Audi, and Chrysler marked a significant inflection point, one that may not be widely appreciated. We began then to move from an era in which each new system represented a virtually original prototype to a new era in which major automotive makers were committing to a common electronics platform which would be applied across the range of its car lines. Clearly, that judgment drove decisions to go with one supplier across the board. That’s a very big decision especially in the automotive industry.

Within the past week, Mercedes Benz advised us that with the new S Class Harman infotainment system a resounding success in a resoundingly successful car we are asked to do the refresh in 2009. We believe that this decision opens the way to a common electronics platform across the board at Mercedes. If our judgment is correct and if our strategy is realized, it will have major implications for us over the next 10-12 years.

On the audio front, we have been awarded an important role in the GM Epsilon program. It includes Harman/Kardon Systems for the Buick line in the United States, for two Buick cars in China, and for virtually the entire Saab range. It is only $15 million of incremental business but clearly meaningful at GM.

We move into the next decade of our OEM automotive business with great confidence. Our $13 billion backlog is growing. The appointment of Helmut Schinagel as Harman/Becker’s CEO effective October 1 places a young industry veteran at the helm and frees Dr. Geiger to devote his unique creative talent to enhancing our leadership in automotive. Further, it will permit at last to work closely with the professional and consumer divisions.

On the professional side, our leadership has been enhanced by the great success of HiQnet. For decades our products and the products of competitors were designed to be hooked together to provide audio coverage in theaters, hospitals, stadia, and in other venues such as outdoor concerts. The systems were large, heavy, and limited in functionality. With the introduction of our HiQnet networking protocol we are transforming that business. Our approach configures, connects, and controls a complete professional sound system from microphone to speakers on one unified digital network. It eliminates duplication and confusion, and it facilitates real-time problem diagnosis and correction. Among our HiQnet installations this past year are the new 50,000 seat Stanford University Stadium, the new Arizona Diamond Backs Major League baseball stadium in Phoenix, and the system for the grand opening of the recently concluded World Cup Soccer tournament in Germany. We earlier announced the promotion of Blake Augsburger to lead the Professional Group and I am delighted at the energy and professionalism he has brought to that assignment.

In our consumer electronics group, the development of the personal navigation device is important. We know a great deal about navigation and we have had increasing success in the PND world in Europe. Since December, we have sold more than 150,000 Becker traffic assist high-speed PNDs. We see the PND as a stimulant, not a threat to our OEM business. Many buyers of the PND are introduced through that device to the value of navigation and other functions provided in the car. Frequently that introduction leads to a decision to purchase an automobile with one of our infotainment systems installed. Our analysis led us to the decision to be in the PND business precisely because we see it as companion to our OEM activity.

The consumer group developed the PND approach from its perspective even as Harman/Becker has proved increasingly successful with its offerings. We believe that there is market opportunity for both organizations in this space. I acknowledge that in some ways this defies business orthodoxy. Still, we have prospered for decades with Infinity and JBL loud speaker products and with Harman/Kardon and Mark Levinson Electronics. Seen in traditional terms, these brands are competing, but in our view they serve different customers with different needs.

Now of course many buyers of PNDs use them for navigation in the car. We, however, see enormous advantage in having all entertainment, communication, and navigation functions represented on a single graphic user interface. Further, as we have studied the intersection of the culture and the technology, we conclude that down the road it will be less a matter of bringing the PND into the car and much more a matter of bringing the PND out of the car and into other life activities. We are therefore designing future OEM systems to permit the car owner to do just that, to unplug the navigation instrumentation and carry it with him wherever he or she goes. Nothing speaks more vividly of opportunity in the consumer space when the history of the MP3 player and the music-enabled phone.

The MP3 player responded to consumers’ need for a truly portable device with which they could record, store, and play back their favorite music. That appetite spread across generations and reached a dramatic moment with the arrival of Apple’s iPod. Since its introduction, iPod has sold over 50 million units and it is still growing strong. The iPod moves beyond the MP3 to provide far more facility and storage, titling, ease of use, and quality of reproduction, and its industrial design has resonated across the generations.

No surprise that the success of the iPod has stirred the imagination and appetite of all cellphone makers and no surprise that great expectations are developing for the so called music-enabled phone. If that phone can provide immaculate communication plus the facility offered by iPod, a powerful new wave of consumer response will undoubtedly develop. The best estimates in the industry suggested upwards of 1 billion. Think of it, 1 billion music-enabled phones will be sold annually beginning in the year 2009. The first generation of such phones has already appeared from Motorola, Sony, and Nokia. For various technical reasons they have not yet met the benchmark of iPod. Until they do that enormous opportunity will not be realized. We are working with the cellphone makers and we are confident that they will overcome the present obstacles.

At the same time, it is predictable that Apple will not sit by as mere observers. There are audio and video opportunities for that creative company and then there is Microsoft. Microsoft has as you know just announced its entry with its totally new Zoom product, meant to be directly competitive with iPod. We at Harman sit in a very attractive place. Our role is to develop, produce, market products that enhance those that are produced by the cellphone makers and by companies such as Apple and Microsoft. The challenge to us is to anticipate and interpret these new products in terms that respond directly to the consumer interest. That we believe is what we are primarily about.

Finally, let me say that two years ago when I heralded the success of our consumer group some analysts thought it a signal of declining confidence by me in our OEM business. I am certain that we have just disproved that notion. We have three very strong and increasingly strong groups. All three produced double digit operating profit percentages last year and we expect that progress to continue.

Our expectation for fiscal ’07 continues. We see a sales increase of 7% to $3.5 billion and earnings per share growing to $4.35, an expected new record. Here is Kevin.

Kevin Brown, Chief Financial Officer

Thank you, Sidney. Net sales for the fourth quarter were $859 million, an increase of 6% compared to the same quarter last year. Gross profit margin was 38.4% consistent with the prior year. Operating income was $104.4 million, a 4% increase from the fourth quarter of last year. Net income for the quarter was $64.8 million. The tax rate for the fourth quarter was 33.4%, compared to 28.3% for the fourth quarter of last year. Excluding fourth quarter restructuring charges and non-operating cost to repurchase debt, earnings per share were $1.09, up 8% from last year’s $1.01. Earnings per share after restructuring charges were $0.95.

For the full 2006 fiscal year sales were $3.25 billion, up 7% over the prior year. Gross profit margin was 35.5%, an improvement of 150 basis points versus the prior year. Operating income was $397 million, an increase of $46 million or 13% from fiscal 2005. For the year, the tax rate was 32.4% compared to 30.6% in fiscal ’05. Excluding fourth quarter restructuring charges and debt repurchase cost, earnings per share were $3.89, up 18% from last year’s $3.31. Earnings per diluted share after the restructuring charges were $3.75.

Our restructuring charges expressed actions intended to increase efficiency in our manufacturing and engineering organizations and the cost premium to repurchase senior debt. These items totaled $14.4 million and reduced earnings per share by $0.14.

Our results were achieved despite unfavorable foreign currency translation due to the strengthening of the U.S. Dollar versus the Euro. For the full year the Euro averaged $1.22 compared to $1.27 in fiscal 2005. More than 60% of the Company's sales and operating profits are generated outside of the United States with much of that coming from Europe. Therefore, reported earnings are significantly impacted by the U.S. Dollar and Euro exchange rates. For the full year, currency translation had a negative impact on sales of approximately $85 million. The negative impact on net income from currency translation was approximately $10 million or $0.14 per share. The Euro averaged a $1.26 during the fourth quarter, consistent with last year.

All three of our operating segments reported higher sales for the fourth quarter compared to the prior year. Automotive sales were $601 million during the quarter, an increase of 5%. Consumer sales grew 15% to $121 million. Professional sales were $137 million, 4% higher than last year. Prior to restructuring charges, automotive operating income for the fourth quarter was $92.1 million or 15.3% of sales. Consumer operating income was $12.5 million or 10.3% of sales, an increase of 78% from the fourth quarter of fiscal year ’05. Professional operating income was $19.6 million or 14.3% of sales, up 22% from the prior year.

The balance sheet at June 30th was strong and continues to improve. Working capital was reduced to 3.3% of sales. Inventory was $345 million and inventory terms were 6.1. Accounts receivable were $445 million and accounts payable were $320 million.

For the fourth quarter, depreciation and amortization was $38 million and capital expenditures were $56 million. Cash at June 30th was $292 million, about the same as a year ago despite $193 million of share repurchases and $136 million reduction in debt. Cash flow from operations was $400 million for the 12 months. Our total debt was $198 million at June 30th. Cash and cash equivalents exceeded debt by $94 million at June 30th.

We repurchased 889,400 shares of common stock during the fourth quarter for $74 million. We will continue our share repurchase program evaluating the buy levels on a quarter-by-quarter basis. We also commenced a tender offer for our outstanding bonds during the fourth quarter. We bought back $282 million worth of bonds which were due in February and July 2007. This action resulted in a $4.9 million non-operating expense in the fourth quarter.

The Company has expensed employee stock options since fiscal year 2003. We expensed $4.9 million for stock options during the fourth quarter, equivalent to $0.05 per share. I’ll turn it over to Doug Pertz.

Doug Pertz, President and CEO

Thank you, Kevin. For the fifth year in a row Harman achieved record results. Company guidance and street consensus estimates were exceeded for both the fourth quarter and 2006. Excluding restructuring and debt repurchase cost earnings per share were up 18%. Operating profit improved another 90 basis points to 12.5%, and the Company ended the year with an even stronger balance sheet including $292 million in cash, $94 million net of all debt.

Driving the strong Company results were record performances at each of the operating groups for the year including double digit operating margins at all groups in the quarter and for the year. The consumer group reported a 15% increase in sales for the quarter and a robust 18% increase for the full year. Our multimedia and traditional consumer businesses were up similar percentages in the quarter. Operating income was 10.3% of sales in the quarter and 10.2% for the year, up from 6.4% last year, suggesting a solid and stable business has been achieved. Automotive sales were 5% in the quarter and 5% into the year to $2.24 billion. Before restructuring operating profit was 15.3% for the quarter and 15.4% for the year. Operating profit was impacted by a $17 million increase in R&D expenditures in the quarter and a $71 million increase in the year.

The professional group finished its record year with sales up 6%, and operating profit of more than 34% to 11.8% of sales. We continue to roll out HiQnet enabled products, a key Harman competitive advantage and we booked significant system orders.

Four key factors affected our performance in the quarter, the year, and will influence future results. The first is currency. As Kevin reported, currency had a negligible impact in the fourth quarter. For the full year it had a negative impact on sales of approximately $85 million or 3%. Excluding foreign currency translation, our actual total sales were up 10% for the year versus the reported 7%, and actual automotive OEM sales were up 9% versus the reported 5%. Further, the Company’s operating income excluding restructuring grew 21% on a constant currency basis versus the reported 16%. Because of currency, earnings were negatively impacted by $0.14 per share.

Second, the tax rate was 33.4% in the fourth quarter and 32.4% for the full year, up almost 2 percentage points from last year’s 38.6%. The increase of 1.8 percentage points had an unfavorable EPS impact of $0.09. Combined currency and tax impacted EPS negatively for the year by $0.23 giving an adjusted EPS growth of 26%.

The third factor is R&D expense, which increased in ’06 and will increase again in 2007 to develop systems for the significant new OEM business we have won in the last year. Shipments against these programs including Chrysler, Hyundai, PSA, and BMW will begin late in ’07 and accelerate in ’08 and ’09. In the fourth quarter, the Company’s R&D spending increased by $19 million and for the year by $79 million. For 2006, R&D expenses were 9.3% of sales, up 2 percentage points from 2005. We anticipate that percentage to continue through ’07. It will start to drop in ’08 as the new programs are launched and as sales increase.

We are focused on improving R&D productivity and better integrating our technical centers around the world. Because of timing of increased R&D spending does not match new program revenues, automotive margins will vary from quarter to quarter. However, we continue to believe that an operating margin of 16% over the next several years is realistic.

The fourth factor is the restructuring. As reviewed by Kevin, the charges included approximately $5 million to repurchase over 90% of our outstanding public debt. An additional $9.5 million of the charge will increase efficiency in four of our automotive manufacturing facilities, primarily through reductions in head count. The benefits from these actions will phase in during 2007 and support our earnings projections.

As Sidney stated earlier, our guidance for ’07 has not changed. We expect earnings of $4.35 per share. We project sales increase of approximately 7% and operating profit to continue to grow. That growth will be somewhat tempered by the relatively high R&D expenses. First quarter earnings are expected to match last year’s exceptional first quarter, one in which earnings were up 65% including a one time tax benefit of $0.08 per share. Earnings in the last three quarters of ’07 should increase approximately 15%. Consumer sales growth in ’07 is projected to continue at a strong 15%. That growth will be driven by significant new multimedia and PND products with introductions heavily weighted in the second half of the year.

Automotive sales are expected to grow over 7% with margins at near 16%. Growth will include increased audio systems sales to Hyundai/Kia and Toyo/Lexus, stimulated by the new Lexus LS 460 flagship and by increased PND after-market sales. Infotainment sales will grow at Audi and the RER will be launched late in the year at Chrysler. Professional sales are projected to grow approximately 6%. Margins should continue to expand with over 20% growth in operating profit.

On a personal note, I wish to thank you Bernie for his significant insight and support during these last several months. He has shared much wisdom with me over this time and I thank him deeply. We will now take questions.

Question-and-Answer Session

Operator

Indeed, and thank you very much Dr. Harman and our host panel for your time and that overview and we do appreciate that. Ladies and gentlemen, as you just heard at this point then, we do invite and welcome any questions or comments that you may have. Please feel free to queue up once again by pressing * and 1 on your phone keypad. Just as a note, if you would like to remove yourself from the queue press the # key. Representing Thomas Weisel, our first question we go to the line of Scott Merlis; please go ahead sir.

Scott Merlis, Thomas Weisel Partners

Thank you and good afternoon everybody. As you went through the quarter, were there any items that were particularly surprising in any direction or was this a quarter that came close to the original plan?

Sidney Harman, Executive Chairman

No surprises, in fact the fourth quarter I think in some respects was a little stronger than we had anticipated entering it and that was particularly true on the consumer side.

Scott Merlis, Thomas Weisel Partners

Yeah, I was surprised by the consumer side also because I thought I heard the Plantonic and LTech’s business was down over 10%, so I was wondering did you buck a trend there, was this a non-iPod accessory, did the non-iPod accessory business do well?

Sidney Harman, Executive Chairman

No, it’s really pretty much across the board, Scott. The part that surprised me was the continuing vigor of the iPod accessory business; frankly not because the others were doing poorly or relatively poorly, I suppose it could be argued that we gained what they lost. I just thought there was so much more competition in that space even including Apple, the vigor might have declined, but it was curiously vigorous during the quarter.

Scott Merlis, Thomas Weisel Partners

But most of your new products don’t come out for another few months, right?

Sidney Harman, Executive Chairman

It is nice news, isn’t it?

Scott Merlis, Thomas Weisel Partners

On the automotive side, congratulations to Dr. Geiger, but should I be concerned that he will be visiting customers less? I understand that he had very strong relationships with the European and German automakers. Does his successor have those longstanding relationships with the companies?

Sidney Harman, Executive Chairman

It’s a good question, Scott. The German automotive society is curiously different from our own. These guys know each other very, very well and where the tradition in the United States has largely been one of where I’ll stay where I am and you mind your own business over there, subject to whatever the regulations maybe and the law, these fellows exchange a great deal of information. It will come as no great surprise to you that that gave us an opportunity to get a very good reading not just on Eric Geiger but on Helmut Schinagel. The guy is widely respected throughout the automotive industry. He’s a very smart guy. Now I add to that the fact that these two fellows know each other very well; indeed, it was Dr. Geiger who first proposed Schinagel as his successor. The fact that they know each other well that they work well together should encourage us and you, since you asked the question, that Schinagel is a very wise man. He will reach for Eric Geiger in every way that he can be helpful. Marketing is one, certainly engineering vision is another.

Scott Merlis, Thomas Weisel Partners

And the significance of the Mercedes business, is that just a greater opportunity to have a common electric platform, you were on the refresh for 2009 on the S Class, does that add to the backlog by itself, but could review the real strategic significance with these common electric platforms, can you get economies to sail, can you save capital spending, can you…

Sidney Harman, Executive Chairman

You’ve done a pretty good job of answering your own question, Scott. First of all, let me tell you that you have tagged what I would like to think as certainly the most significant thing I have had to say in the introduction. I just simply remind you that over the history of the development of these systems, virtually every system was its own prototype, every system you were in large measure starting from scratch. When we began an early point of reference and scalability the opportunity to think about generating common platforms was real. It was realized in terms of the commitments at Audi, at PSA, and in large measure at Chrysler, and the implications of these commitments are exactly what you speak about. We had expected costs to come down on infotainment systems. We had expected selling prices to the end-user to come down, and we had expected that we would see this expressed in terms of more sales across more platforms. That process will be particularly stimulated if the cost efficiencies were both implicit and explicit in a common electronics platform through a single car maker’s range are realized. We expect them to be realized, we expect to see that happening, we think it augurs very well for an expansion of the market and for frankly much more attractive pricing from us to auto customers, automaker customers, much more attractive pricing from them to the end-user and thus a growing market place.

Scott Merlis, Thomas Weisel Partners

Finally, just a bookkeeping question, there was a nickel of stock options in the quarter, was it similar to last year, I don’t have it in front of me?

Kevin Brown, Chief Financial Officer

Yes, it’s been running about $0.04 a quarter, was a little bit higher in the fourth quarter. Full year would have been just about $16 million and that was a couple of million dollars higher than last year.

Scott Merlis, Thomas Weisel Partners

But in the fourth quarter of ’05, was that around $0.04?

Kevin Brown, Chief Financial Officer

Yes, it would have been $0.35 to $0.04; I can get you the exact number.

Scott Merlis, Thomas Weisel Partners

Thank you.

Operator

Thank you very much Mr. Merlis. Next in queue, we go to the line of Scot Ciccarelli representing RBC Capital Markets; please go ahead sir.

Scot Ciccarelli, RBC Capital Markets

A question regarding the restructuring charges; I mean obviously you guys are trying to streamline and become more efficient, what is the expected benefit there, is there any way for you guys to quantify at this stage or is it just too early?

Kevin Brown, Chief Financial Officer

I think we’ve said that the restructuring charges will phase in during this year that we’re just starting out. We’ll continue to see some additional charges this year and overall the net benefit we’ll see included in numbers that we projected as company guidance.

Scot Ciccarelli, RBC Capital Markets

But, I guess if I’m thinking about a run rate for the cost benefits for the charges already taken, is there a kind of a run rate…I know it will be phased in, but it’s kind of like you contracts, you phase it in but at some point it reaches a maturity level?

Kevin Brown, Chief Financial Officer

It will be somewhat less and maybe significantly less than the overall charge.

Scot Ciccarelli, RBC Capital Markets

Okay, got it. Any update on the Chrysler business, either in terms of timing of some of the new models or kind of where you guys are in terms of the technology platform?

Sidney Harman, Executive Chairman

I don’t understand the question, Scot.

Scot Ciccarelli, RBC Capital Markets

The information that we have at this point is you’re expecting about $20 million of business from Chrysler for fiscal ’07. I guess I’m wondering is there any kind of update to that, has Chrysler changed their rollout platform as far as they’ve informed you or are there any changes to the technology platform itself?

Sidney Harman, Executive Chairman

No real change at all, a very modest delay in the introduction, but it doesn’t alter our numbers, and so far no alteration of consequence from them. We’re staying in very close touch with Chrysler because this is a vitally important program to them; as a consequence it’s a vitally important program to us.

Scot Ciccarelli, RBC Capital Markets

Fair enough, and then I just kind of a higher up question on that, Sidney; is it more difficult to work with guys kind of the first time around, you know Chrysler obviously you’ve been supplying audio systems to them forever, but in terms of infotainment, is that more difficult with them or Peugeot than it is with Mercedes or BMW, the guys that you’ve kind of been around the block with a couple of times?

Sidney Harman, Executive Chairman

It’s a more interesting question that it is as one that lends itself to a good answer. It beats the hell out of me, Scot. One would think that you could offer that kind of demarcation, but think about it. The more you know about the business if you are the customer the more difficult you can be with the seller. If you come to it innocent you may depend more on the guy who is doing the job for you. On the other hand, if you come to it innocent the questions are unending. It’s a very different schematic in each case.

Scot Ciccarelli, RBC Capital Markets

Okay, so it’s really customer by customer in that sense?

Sidney Harman, Executive Chairman

Oh, and for reasons I hope I’ve made reasonably clear.

Scot Ciccarelli, RBC Capital Markets

Fair enough, thanks a lot guys.

Operator

You now have a question from the line of Chris Ceraso representing Credit Suisse; please go ahead sir.

Chris Ceraso, Credit Suisse First Boston

Thanks, good afternoon. I have a few items. First, going back to the comment about the common architecture at Mercedes, is the implication here that you’re likely to get the E Class back or rather the pieces of the E Class that you’re expected to lose, do you think you’ll get those back when that turns over again?

Sidney Harman, Executive Chairman

Chris, I really shouldn’t be answering all these questions. The implication is opportunity and I think to go beyond the quite important implication would be imprudent right now. But clearly with any automaker goes that route, it pretty well suggests that the source is the same source, and we see considerable promise in that trajectory.

Chris Ceraso, Credit Suisse First Boston

Okay, fair enough. Last quarter I think one of the reasons cited for what was maybe a little bit of tempering in the outlook for ’07 were some concerns about NAV penetration rates on some of the older but important vehicles for you. Can you give us an update on whether or not you’re actually seeing that, are penetration rates for NAV systems going up, are they going down or are they staying the same?

Sidney Harman, Executive Chairman

We spent a little time on that just in the last day or so. One of guys want to speak to it?

Doug Pertz, President and CEO

Sure, I think that there are two parts to that question, one of them is the penetration rate that we see in our top platforms is actually up or at least stable in 8 out of our 10 top platforms, which is very good news we think and very positive, and it’s indicative in our numbers. And you’re right, the second piece of that is the two that are down are older platforms where we are generally using our turn-by-turn systems. So that supports you comments about the older systems there.

Chris Ceraso, Credit Suisse First Boston

Good. Last quarter, Dr. Harman I think you mentioned that the outlook for ’08 was 5.25, there’s no mention of that here in the release, is that number still good, are you comfortable with that?

Sidney Harman, Executive Chairman

Oh yes.

Chris Ceraso, Credit Suisse First Boston

And then lastly maybe if you could just give us a little more background about Helmut Schinagel’s background at BMW, what exactly was he doing there, what’s his background?

Sidney Harman, Executive Chairman

This is a manager with a marketing mind who is very knowledgeable in the supply chain, and I suppose it’s fair to say was essentially our customer. He was that tough guy who Scot was talking about earlier, who made us tow the line. So, he brings a very substantial experience and clearly a very creative automaker with him, and I reiterate what I said earlier -- this is not a modest step for this Company, it’s a major step, and I believe and in a kind of phrase I rarely use “win-win.” He is a hell of an experienced guy, widely respected in the automotive industry, especially so in Europe, and we keep that wise old creative genius, Geiger.

Chris Ceraso, Credit Suisse First Boston

Thank you very much.

Operator

And thank you very much Mr. Ceraso. Next in queue we go to the line of Jeff Kessler representing Lehman Brothers; please go ahead sir.

Jeffrey Kessler, Lehman Brothers

Sidney, the consumer business that you’ve had certainly has had its ups and downs over the years and obviously over the last several years it’s mainly up. I’m trying to get to a margin on this business, obviously is hazardous on a quarter-by-quarter basis somewhat because of product introductions and then competition and then new product introductions and then more competition. What I’m getting to is, now that you’ve got some idea of where you’re settling out, can you give us some idea of perhaps where you think from an introduction point of view you’re going to be able to bring your margin over the next couple of years and where we can stabilize range, because I know you’ll not be able to pinpoint it, but a range would be good in a business that in the past has not been that stable and now is showing obviously good growth and stability in the margins. Nevertheless, a range in margin would probably be helpful for us to model.

Sidney Harman, Executive Chairman

Range in margins 10% up and I think if we stay around there we got us a remarkably healthy consumer business.

Jeffrey Kessler, Lehman Brothers

Okay, and secondly the Company has gone through what could probably be described as a virtual total management turn over at the top at least over the last few years, and I’m wondering if you could characterize the way management operates today, if there is any change perhaps from your perspective relative to where management was operating two or two and a half years ago, not just in relationship but in the operational focus that the management brings to the Company?

Sidney Harman, Executive Chairman

It’s a good question and I would say that rather than thinking of it as turnover I think of it as development. This is a company determinately building itself and continuing to build itself for the long run. We have I think demonstrated some facility at management and I regard our present crew as being very, very well suited to each role. There are very few companies by the way where you see the sort of transition that we’re able to effect just about everywhere here. As Mark Terry of Necessity moved out of the role of CEO of the professional group, we were positioned and we knew what we were at years ago to promote Blake Augsburger who had done a superb job running the Crown subsidiary of Pro. As Eric Geiger has moved forward to take over his responsibilities on a worldwide corporate basis, both in terms of strategy and technology, we’ve been able to move with Helmut Schinagel and these fellows will work the transition together. Helmut I remind you is coming on board on October 1. Here sits Bernie Girod, legendary Bernie Girod, and he will be here through December as his successor, Doug Pertz, moves comfortably and effectively and I think in a very appropriate fashion into those responsibilities. In effect, Doug reads Bernie, Kevin reads a good competent, professional succession in the financial role, the one continuing bit of fiber, and like it or not the guy still kicking around is old Sidney.

Jeffrey Kessler, Lehman Brothers

R&D, can I get some color on what types of increases that you’re looking for over the coming fiscal year, have you given up some color in your brief comments, and then to what degree will R&D go up in 2008 or is it going to stay the same or is it just going to essentially shrink as the percentage of total revenue?

Kevin Brown, Chief Financial Officer

We are looking for R&D to go up on an absolute basis slightly this year versus ’06. On a percentage basis it will be flat. In ’06 it was 9.3% for the full year and we expect that to be flat or so in ’07, and then it will start coming down on a percent to sales basis and be relatively flat again on an absolute there, but it will come down dramatically in ’08 and beyond on a percent to sales basis.

Jeffrey Kessler, Lehman Brothers

One final question and this is kind of a bookmark here; I mentioned the consumer business, the professional business came in at margins that were surprising and those margins actually have been itching up over the course of the last couple of years. There used to be what we would call company wide margins, but clearly the professional business is benefitting from some of the integration going on with the components. I’m not trying to answer my own question, but what I’m getting to is if this is sustainable getting professional margins to go over 10% and keeping it there?

Sidney Harman, Executive Chairman

Yeah, I’m very comfortable with that, Jeff. It is despite your disavowal, you in large measure did answer your question, it’s no accident. This is the consequence of a remarkable job of integration in technology and in marketing across the board at Pro, and obviously it speaks to the great success of HiQnet. That’s not just a modest strength and it’s not just an engineering achievement, it has significant marketing and margin implications, and I can amplify that if you need it.

Jeffrey Kessler, Lehman Brothers

Well, I can get the rest offline, but thank you very much and good luck with 2007.

Operator

Dr. Harman, your next question comes from the line of Peter Barry with Bear Stearns.

Peter Barry, Bear Stearns

Sidney, let me just follow up given Jeff’s focus on Pro and ask you where are we in terms of the ATG turnaround?

Sidney Harman, Executive Chairman

Making very good progress, I perhaps should have mentioned this when I was reviewing management. You know, it’s not easy to find a first class manager in a small country like Austria, and there was a very vigorous search there before we came up with Stefan Gubbe, and Stefan Gubbe has joined a really first rate job there. I think it has these two serious consequences and then a relatively shorter range starting now that I might otherwise have expected. First of all, excellent organizational capability there, the beginning of a margin contribution rather than a margin drag, and I see that margin contribution growing year by year, and third serious concentration on its most fundamental business, the microphone business from which it had been sadly distracted, and with that I think we will see increasing penetration in the critically important American market year by year. I feel quite good about that company.

Peter Barry, Bear Stearns

And that has implications I gather for the automotive segment, maybe even more importantly than any other in the near term, correct?

Sidney Harman, Executive Chairman

Probably not, I don’t think you should jump to that conclusion, Peter, though I can see why you get there. We have moved to integrate as much of the automotive design into Becker. So, you’ll see benefits there and AKG will participate some, but I don’t see that as a big opportunity for them.

Peter Barry, Bear Stearns

Sidney, very successful introduction of the Harman/Becker PND at 150,000 units, could you give us a rough sense of where you think you might be this time next year in unit volumes and what may have happened to ASPs in the process?

Sidney Harman, Executive Chairman

Well that’s a pretty difficult question as you come into a relatively new market, new to us, but I certainly project the multiple going forward. Keep in mind we are moving forward in the consumer group also, expectations are high. This coming year, 2007, approximately half a million units as against the 150,000 that I spoke of in my introductory remarks, that represents pretty good bump.

Peter Barry, Bear Stearns

And it implies gaining market share I might add?

Sidney Harman, Executive Chairman

And if we’re in the business at all if there’s nothing for us to do except market share.

Peter Barry, Bear Stearns

Doug, in your earnings guidance you alerted us to a flat first quarter but yet a very strong year-over-year performance for fiscal ’07 implying obviously that the back half of the fiscal year which was relatively flat in the prior year can be very powerful, is that an overstatement?

Doug Pertz, President and CEO

Well, I think we need to keep a couple of things in mind here. I stated that the first quarter of last year was an extremely strong quarter, up 65% in earnings and including a one time benefit of $0.08 per share from taxes. So, when we’re looking at a flat performance this year versus last year it’s still a very, very good up year. And then the balance of the three quarters of this coming year are up 15% versus the prior year, which gives us the full 435 versus the 389 this year.

Peter Barry, Bear Stearns

Just a couple more for me, can we put a dollar around on the S Class refresh in fiscal ’09 Sidney?

Sidney Harman, Executive Chairman

I think it’s purely for us here but I’ll get back to you on that and anyone else who wants to hear it in the next few days, because we are beginning tonight a conference for all our senior executives, that’s one of the things that we will review. The good move, Peter, is that we continue the S Class beyond fiscal ’09, beyond the refresh, and that volume and pricing is very significant to us as you will know. That continuation Bernie speaks of now looks like it runs into 2012 and 2013.

Peter Barry, Bear Stearns

And does that change the backlog number to something closer to $14 billion perhaps?

Sidney Harman, Executive Chairman

I think you can stay with the $13 billion.

Peter Barry, Bear Stearns

Finally, to me I have to ask my Schinagel question also, where do you expect we are first going to see evidence of his unique presence in Harman/Becker?

Sidney Harman, Executive Chairman

Good question, Peter. I see the sum of what he brings and what Dr. Geiger represents as a very significant plus all by itself, but Schinagel is very talented in engineering terms, and therefore I believe absolutely that the legacy that Eric Geiger has built in the last decade will continue. I also see a very strong instinct on the part of Schinagel to control costs. Now with all respect to Eric who probably is listening to what I’m saying anyhow, there are some aspects of Harman/Becker which characterize all startups. You’ve seen it time and time and time again, a burst of energy, burst of business, the Company rushing and running to kind of keep up with its own dynamic, dramatic growth. I suppose it’s fair to say that if Eric was succeeding Helmut I’d see the same thing of real accentuation on control of cost. That’s a big step.

Peter Barry, Bear Stearns

Thank you very much.

Operator

Thank you, Mr. Barry. Next in queue, we go to the line of Ron Tadross representing Banc of America Securities, please go ahead.

Gerald Nathan, Banc of America

Hi, this is Gerald Nathan for Ron. Excluding R&D, it looked like SG&A came down quite a bit sequentially and year-over-year, I’m just wondering is there anything special going on there or how sustainable that is?

Kevin Brown, Chief Financial Officer

Excluding R&D, SG&A is essentially flat and we see minimal growth in SG&A going forward, minor growth, but basically the R&D explains all of the increase in SG&A.

Gerald Nathan, Banc of America

Okay, thanks.

Operator

Thank you very much sir. Next, we go to the line of Steve Lidberg representing Pacific Crest Securities, please go ahead.

Steve Lidberg, Pacific Crest Securities

Good afternoon. With regards to the macro head wins I guess we see in the market place, both Europe as well as the United States, what have you seen in terms of your automotive customers and activity levels as we move throughout the quarter.

Sidney Harman, Executive Chairman

What we see is continuing bigger among our primary customers. Mercedes has managed quite a remarkable recovery. The new S Class as everybody recognizes it is a market leader and that then carries obvious and already begun to demonstrate implications for Mercedes moving forward. Porsche is a remarkably vigorous company. BMW is creative, growing, and strong company. The German companies, Audi all of them are looking very, very good. We’ve been, I suppose, fortunate with companies that have struggled in this world have not been major players in our schematic. Here in this country, Chrysler has demonstrated the most leap and that’s where we are — very, very well committed. I needn’t tell you about the continued growth success at Toyota. We happily, and in this respect in somewhat different circumstances from others in this space, we happily have been affiliated with those companies in the automotive industry that have been outpacing the industry.

Steve Lidberg, Pacific Crest Securities

As a followup, as you look at, I guess you highlighted in your comments the opportunities as we move down into the mid class cars with the entertainment systems. Beyond the wins that you recorded at Chrysler, PSA, etc., what is the activity level of interest that is being expressed now as you look beyond kind of the 2008-2009 timeframe, does that also remain strong?

Sidney Harman, Executive Chairman

I think so, and the reason I say I think so is I’ll give you an absolute answer to that kind of question when somebody gives us absolute business, but you’ve identified the trend in a very important way. Chrysler is a good expression of it. Audi, PSA, these are important expressions of it, and Doug calls my attention to the fact that Hyundai and Kia are by definition in the space you’re taking about, though Hyundai certainly has big aspirations on the luxury side.

I have a question on Chrysler, the new “MiGig” system that’s getting rolled out on several 2007 model year vehicles, your guidance has been that this new program will contribute $20 million in the June quarter of fiscal 2007, but it would seem like if these are 2007 model year vehicles, it would seem like you’d probably record some revenue in September or the December quarter.

Sidney Harman, Executive Chairman

I think you’ll see the revenues in the second half almost totally there.

Peter Friedland, Soleil Group

Okay, but then you’re still talking about $20 million?

Sidney Harman, Executive Chairman

Yes.

Peter Friedland, Soleil Group

Great, thanks.

Operator

Thank you, Mr. Friedland. Next, we go to the line of Douglas Pratt with Mesa Capital, please go ahead.

Douglas Pratt, Mesa Capital

Thanks very much. Could you tell us what’s your CapEx and depreciation forecast for this coming fiscal year, and also what was the nature of the $5.4 million in other income gains recorded this quarter? Thank you.

Kevin Brown, Chief Financial Officer

Okay, let’s start with CapEx as there were several pieces to your question. Actual CapEx for fiscal year 2006 came in at $131 million, which is about 4% of sales down from where we were in fiscal 2005. Our guidance has been about 5% of sales. I think we’re going to be a little less than that for fiscal year 2007, I would say in about the $150 million range on CapEx for next year. D&A depreciation and amortization was also about $130 million in fiscal year 2005, and I expect it to be about that same level next year. I think you asked about the miscellaneous order?

Douglas Pratt, Mesa Capital

Yes.

Kevin Brown, Chief Financial Officer

Yes, there was a miscellaneous expense in the quarter which was $5.4 million, the majority of that is the premium to buy back the debt.

Douglas Pratt, Mesa Capital

Okay and what’s your tax rate, what you’re planning for this coming year?

Kevin Brown, Chief Financial Officer

Our tax rate for the coming year will be similar to where we came out of fiscal year 2004. I expect the rate to be between 33% and 34%, probably in the first quarter will be on the higher end of that range, but 33% to 34% for the year.

Sidney Harman, Executive Chairman

Okay, Brett, we got time for another question.

Operator

Indeed, thank you Mr. Pratt and thank you Dr. Harman. And next in queue, representing UBS, we go to the line of Shi Wong Chung, please go ahead.

Shi Wong Chung, UBS

Good afternoon. I have a quick question about HiQnet. So far HiQnet has been installed mostly in kind of large centers, have there been any penetration of a smaller market, like how scalable is HiQnet?

Sidney Harman, Executive Chairman

Well, we think it is very scalable indeed. Clearly, its initial major advantage is represented in the most complex systems, but we see applications for much of that technology not only in Pro but in the consumer business also.

Shi Wong Chung, UBS

Okay, great. With the success of Harman/Becker’s PNDs in Europe, is there any intention to kind of roll out in the US?

Sidney Harman, Executive Chairman

Yes, as I intended to say during my opening comments, Becker brings a particular perspective to the design and the marketing of PND. The consumer group brings another perspective with a different kind of emphasis. We are persuaded and we understand well the cost implications of two efforts, but we are persuaded that having these two working that market place gives us very real advantage. Now, obviously the natural ground for the consumer group in PND is the market you ask about in North America.

Shi Wong Chung, UBS

Okay, great. One last question, have you had any traction, can you talk about what traction you had in growth into the emerging market outside of North America and Western Europe?

Sidney Harman, Executive Chairman

Well, emerging markets clearly if you ask a question in those terms are Asia. We are of course established very, very well with the leading automotive company in the area at Toyota. We are doing increasing amounts of business with Hyundai, and I need not tell you that all auto manufacturers, everyone in the industry keep a good careful eye on Hyundai and we are increasing our engagements in China as I summarized in my early comments.

Shi Wong Chung, UBS

Okay, great, thank you very much.

Operator

Thank you very much Mr. Chung. Well, with that Dr. Harman I’ll turn the call back to you for any closing remarks.

Sidney Harman, Executive Chairman

Well, once again I recognize that this is a particularly important earnings call because we review the year just ended and we anticipate the year upcoming. By this time, so many of you have come to know us very, very well. We take enormous pride in offering guidance that is not speculative, that is not wishful thinking. Someone once said to us, I suppose this was an investor and not an analyst, but I’ll repeat it any how, “The one thing about your guys is that you deliver on what you say you’re going to do.” I hope that’s the general view. I hope we continue to perform just that way. I thank all of you for joining us today.

Operator

Very nicely said, we thank you Dr. Harman and the executive team for your time today. And ladies and gentlemen, Dr. Harman is making today’s conference available for digitalized replay for one full week and also web replay for seven days. The digitalized replay is available starting at 5 p.m. Pacific Time, August 15th. Please dial 800-475-6701 and at the voice prompt enter today’s conference access code of 838364. Alternatively, you may go to www.harman.com to listen to the web replay again with the access code of 838364. And that does conclude our press release for this quarter, thank you very much for your participation as well as for using AT&T’s Executive Teleconference Service, you may now disconnect.

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